On March 12, Prashant Fonseka was flying to San Francisco from Austin, Texas, with other techies returning from the South by Southwest conference. Mid-flight, US regulators announced that the government would ensure that all Silicon Valley Bank depositors, that had gone bankrupt on March 10, would be fully reimbursed.
The plane erupted in applause. “It was the most excited I’ve ever seen people on a plane,” said Fonseka, a venture capitalist at Tuesday Capital.
Everyone’s money was safe, but the The disaster surrounding Silicon Valley Bank, which had been a linchpin of the startup ecosystem, was an eye-opening moment for the tech industry.
While the government announcement gave start-ups and investors whose money had been trapped in the bank the assurance that they would be reimbursed, The episode exposed vulnerabilities in the tech industry and laid bare the blame-blaming behavior of many who work in it.
The angst over the bank’s failure highlighted how reliant the startup industry had been on a single institution. On Twitter, various tech investors blamed the situation on almost everyone but themselves, and then they were surprised that so few outside the industry were sympathetic to their plight.
Jason Goldman, a technologist and startup veteran who has worked at Twitter and Google, said the Silicon Valley Bank implosion “revealed some problems in the way the industry portrays itself to the rest of the world.”
This got worse when investors and startups lost public and massive faith in Silicon Valley Bank, sparking panic, Goldman said. Some of the “strongest voices in the investment community” were positioning themselves as the victims, not the small businesses that couldn’t pay the payroll, he said. “It raised the issue of hypocrisy, as some of the loudest voices were also those that had repeatedly been against any government-funded safety nets in other contexts,” he said.
Many start-ups worked with Silicon Valley Bank because it specialized in lending money to risky young companies, something that few banks offered. By its own admission, the bank served nearly half of all venture capital-backed life sciences and technology companies in the United States, and was the bank for more than 2,500 venture capital firms.
In a letter to investors seen by The New York Times, venture firm Andreessen Horowitz said about half of startups that he had invested in had banking relationships with Silicon Valley Bank.
Silicon Valley Bank also offered low-interest loans to investors and startup founders who did banking with it. The loans, declined by traditional banks, were used to buy multimillion-dollar homes, three people said.
The founder of a startup, who spoke on condition of anonymity because he did not feel comfortable disclosing his personal finances, He said that Silicon Valley Bank gave him a loan of 4 million dollars for his house in San Francisco with an interest rate of 2.2 percent. Other banks were offering rates of 3 percent and higher.
Silicon Valley Bank referred requests for comment to the Federal Deposit Insurance Corporation. (FDIC)who declined to comment.
For many tech entrepreneurs, the anxious situation ended on March 13 when they and their companies gained access to their bank deposits, which had been frozen for more than 72 hours. Bryan Lord, chief executive of medical device company Pristine Surgical, said he and his start-up company’s controller spent more than five hours that day trying to get the company’s money out of the bank, having to wait in line digitally. .
“You would approach and they would take you out,” he said. He was finally able to withdraw the millions of dollars his startup had in the bank. “We jumped for joy when we could do it,” she said.
ERIN GRIFFITH AND MIKE ISAAC
THE NEW YORK TIMES
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/6623113, IMPORTING DATE: 2023-03-22 00:30:09
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